The analysis of monetary policy rules has been confined to models not
capable of examining situations where an economy is converging to a
higher balanced growth path. For the small open economies having
entered the European Union recently this is however a very relevant
question. The main aim of their integration is convergence itself and
most of the criteria they have to fulfil in order to become members of
the euro zone are of monetary nature. It is thus of special interest for
them whether and how the chosen strategy of monetary policy aiming
at the fulfilment of the requirements they face affects the transition.
In this paper a first attempt is made to compare monetary policy rules
in a monetary model of small open economies, which builds essentially
on the convergence literature. The results show that the economy
behaves very differently in the transition under the different monetary
policy rules examined.
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